How to Capitalize Enhanced Oil Recovery Program Costs When They Demonstrably Increase Reserves
Capitalizing EOR injection program costs when the program increases total recoverable reserves above what primary recovery would achieve.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| EOR Asset (Capitalized — Future Economic Benefit) | Asset (+) | 8,000,000.00 | - |
| Cash / Chemicals Supplier | Asset (-) | - | 8,000,000.00 |
💡 Accountant's Note
EOR costs are capitalized when the injection program demonstrably increases total recoverable reserves. If the expenditure only maintains current production rates, it is expensed as a lifting cost.
Practitioner & Systems Framework
💻 ERP Architecture
EOR treatment depends on the purpose and demonstrated impact of the program. Chemical EOR (surfactant, polymer, ASP flooding): capitalize if proved reserves are increased by the program (requires a reservoir simulation demonstrating the incremental recovery). Steam injection, CO2 flooding: similar analysis. Waterflooding for pressure maintenance: typically a development asset (see og-injection-well-capitalized). If the EOR program only maintains plateau production and does not add incremental reserves, expense as LOE.
⚠️ Audit Flags
The key evidence for EOR capitalization is an updated reserve estimate demonstrating that proved reserves increase because of the EOR program. Without a reserve increase, EOR costs cannot be capitalized. Auditors will request the reservoir simulation model results and the reserve engineer's assessment of incremental reserves attributable to the EOR program. Companies may be tempted to capitalize EOR costs to avoid P&L charges, so auditors are skeptical of capitalization without strong reserve evidence.
📄 Required Documentation
Reservoir simulation results showing incremental recovery from the EOR program, Competent Person's Report confirming the reserve increment, EOR program design and cost estimate, chemical supplier invoices, comparison of proved reserves before and after EOR decision, EOR asset capitalization basis (incremental reserves as the asset's economic life), and ongoing monitoring data showing EOR injection and production response.
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Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.
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